Nordic Credit Rating (NCR) said today that it had assigned a 'A-' long-term issuer rating to Norway-based Orkla Sparebank. The outlook is stable. At the same time NCR assigned an 'N2' short-term issuer rating. NCR has also assigned 'A-' issue ratings to Orkla Sparebank's senior unsecured bonds, 'BBB+' issue ratings to its tier 2 bonds and 'BBB-' issue ratings to its additional tier 1 bonds.
Rating rationale
The long-term rating reflects the bank's strong capital position, strong liquidity and low risk appetite. Orkla Sparebank has a cooperation agreement with the Eika alliance, which we view as positive, as it provides product diversity, shared development costs and the opportunity to finance residential retail mortgages through Eika Boligkreditt. We expect Orkla Sparebank's core earnings to improve in 2023 due to higher interest rates boosting net interest margins. We also believe that improved cost efficiency will help stabilise earnings in the years ahead. We expect these improvements to offset an anticipated increase in loan losses due to a slowdown in the overall economy.
The rating is constrained by the bank's concentrated exposure to real estate and agriculture in the region south-west of Trondheim in central Norway. It is also constrained by strong competition and low market share in Trondheim, which is the fastest-growing market for the bank.
Stable outlook
The outlook is stable, reflecting our view that the weakening economic climate and higher projected credit losses will be offset by improvements in capital and earnings metrics. We believe the bank's low risk appetite, strong liquidity position, improved earnings and stable cost position provide resilience to a moderate slowdown in the economy.
We could raise the rating to reflect an improved macroeconomic situation and improved asset quality metrics relative to peers; and improved capital and earnings, with a Tier 1 capital ratio sustainably above 25%.
We could lower the rating to reflect a material deterioration in the local operating environment that negatively affects the bank's asset quality, a sustained reduction in the Tier 1 capital ratio to below 20%, or to reflect risk-adjusted earnings metrics sustainably below 2.0% of REA.
| Rating list | Rating |
|---|---|
| Long-term issuer credit rating: | A- |
| Outlook: | Stable |
| Short-term issuer credit rating: | N2 |
| Senior unsecured issue rating: | A- |
| Tier 2 issue rating: | BBB+ |
| Additional Tier 1 issue rating: | BBB- |
Contacts:
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
Christian Yssen, analyst, +4740019900, christian.yssen@nordiccreditrating.com
The methodology documents used for this rating are NCR's Financial Institutions Rating Methodology published on 18 Feb. 2022, NCR's Rating Principles published on 24 May 2022 and NCR's Group and Government Support Rating Methodology published on 18 Feb. 2022. For the full regulatory disclaimer please see the rating report.